Tuesday, January 8, 2013

iPhone manufacturing costs revealed?

iPhone manufacturing costs revealed?

An unprecedented peek behind the curtain of Foxconn's factories in China may have revealed new hints to how much it actually costs to make each iPhone.

ABC's "Nightline" was recently given access to the factory floor, and the resulting reporting has provided some new insights into exactly how iPhones are built, a part of the gadget's gestation process that's typically been a very closely guarded trade secret.

Horace Dediu, blogger, analyst, and former business development manager for Nokia, tried to parse some of the clues and came to some interesting conclusions.

Dediu took two key revelations from the "Nightline" report--that each iPhone takes 24 hours to be built, including 6 to 8 hours of software and component "burn-in" and testing, and that workers on the line make $1.78 an hour.

He then ran that information through some calculations to come up with a new cost range for the labor it takes to make each iPhone, and found the following.

Those costs are likely to range between $12.5 and $30 per unit.

Labor costs are still a small part of the overall cost structure at between 2 percent and 5 percent of sales price.

The high level (141 steps) of human interaction in the process could be automated. However, the fact that it isn't implies that the cost of automation would be higher and the flexibility of the automated process would be lower.

Dediu adds that these manufacturing costs are likely much higher than competing devices--perhaps as much as 300 percent--due to the intensity of the design and quality testing. They're also higher than previous estimates of iPhone assembly costs, which have been pegged as low as $8 per unit.

For a little added perspective, even if the labor costs per phone are on the high side of the range at $30, twice that amount per unit is likely allocated to transportation and warranty expenses.

In other words, when you spend hundreds on an iPhone, it's possible that more of those dollars are going toward a promise on paper you probably won't use (the warranty) than to the people who actually put the thing together.